With the Fed's interest rate hike, many investors in the crypto market are not sitting still. They are very worried about the impact of the Fed's interest rate hike on digital currencies, because it is very likely that the Fed's interest rate hike will have a certain impact on bitcoin. Bitcoin's historic surge last year was enabled by the Federal Reserve providing pandemic-related liquidity, and now that the Fed is about to tighten monetary policy, investors also need to reassess risk and consider the consequences of a war between Russia and Ukraine. So what impact will the Fed rate hike have on bitcoin?

The U.S. economy has performed strongly over the past two years, with inflation stable around 2% and no sign of a change in inflation expectations, the overall performance of the economy is not at high risk of overheating. If growth remains strong, Fed Chairman Powell said gradual rate hikes would be appropriate. So far, the Fed has raised interest rates eight times since the cycle began in December 2015, and the pace seems to be getting faster.

Some analysts believe that digital coins have always existed in the US economy with low interest rates. When a sudden high interest rate environment comes, more funds will be lost from the digital coins market. Because of higher interest rates, citizens are more inclined to keep their money in the bank rather than invest it. The lack of funds in the crypto market will also cause the lack of liquidity, so that blockchain enterprises are stuck in the deadlock of capital chain shortage. This is a big blow to the entire cryptocurrency market.

From the data analysis results, before and after the Federal Reserve raised interest rates since 2017, from the perspective of the market trend of bitcoin, whether to raise interest rates or not has no statistically significant correlation with the price trend of bitcoin, and even from the perspective of descriptive analysis, a consistent pattern can not be obtained.

Blue represents the price movement of bitcoin in the month before the announcement, orange represents the price movement in the month after the announcement, and gray represents the price movement in the rest of the time. As you can see from the bitcoin chart above, Bitcoin in general has gone up and down before and after the rate hike. But before the bull market in January 2018, the price of bitcoin would rise on news of a possible rate hike, and then fall after the announcement.

Impact of Fed Rate hike

For now, every dollar rate hike is expected, and even if it happens, the dollar probably won't appreciate much, and the cryptocurrency market won't suffer much damage because the "good" news will run out long before it does.

The focus is on the consequences of higher interest rates. If the Fed does not raise interest rates at this meeting and the outcome is unexpected, the expected dollar appreciation and repatriation could even be reversed.

The main reason for the crypto market's "irrelevance" to US dollar rates is believed to be the USDT. Because there are stablecoins in the cryptocurrency secondary trading market, stablecoins, which are anchored 1:1 to the U.S. dollar, dilute the impact of the U.S. dollar rate hike on the cryptocurrency market to a certain extent.

The price of gold has not moved in tandem with dollar interest rates since 2008, while worries about the European debt crisis have shaken confidence in the US government and created distrust of the centralised financial system. Even the Fed's repeated rate hikes have not stopped people from moving money out of banks and into private assets like gold and bitcoin.

The investment markets are now in a tailspin as the Fed signals more imminent tightening, which is quite different from an interest rate hike that indirectly reduces the money supply, because this quantitative tightening has a much bigger impact on the market, with the central bank pumping money directly out of the market. As the Federal Reserve increases the speed and intensity of its tightening measures, the dollar will surely further appreciate, and the possibility of capital outflows from emerging markets will also further increase, which is expected to have a relatively large impact on many industries.

In crypto, if you want to take advantage of the next bull market, you need to have a quality community, where people can stay together and stay perceptive. If you just a person, look around at a loss, found that no one, want to stick to it in this industry is actually very difficult.